Vendors and analysts told TWICE that tightness in LCD panel shipments during the second quarter of 2007 has limited supplies of certain LCD TV screen sizes, particularly among brands without direct control over factory production.
At the same time, shortages have surfaced in smaller panel sizes used for such high-demand categories as digital photo frames, notebook PCs and personal navigation systems.
The result has been slowing availability of LCD TVs in certain screen sizes this summer followed by attempts to stabilize or even raise panel pricing in some segments. But analysts add that increased expansion plans in Gen 7 and Gen 8 LCD panel factories planned to go online in late summer should avert shortage disasters in time for the holiday selling season.
Industry observers said summer LCD TV supply issues resulted, in part, from panel suppliers slowing down production in the first quarter following an industry panel glut in the fourth quarter of 2006 and early 2007. This was followed by stronger-than-expected consumer demand for LCD TVs in the second quarter.
In addition, growing demand for digital photo frames, notebook PCs and other components has caused some panel suppliers to shift production of some midsized LCD TV panels to screen sizes suited for other categories.
The market tightness has hit hardest TV brands without direct control over LCD panel production.
"Panel shortages are affecting everybody in everything from TVs to portable DVD players, and car entertainment products," observed Tom Malone, Audiovox president. "On the regular TV side for everybody it's been a struggle. You may get 70 to 80 percent of what you order. You just have to factor that into your buying, and I think the [retail] buyers understand what's going on today. So they are hedging their bets."
With LCD TV supplies now low in some areas, several panel suppliers have used the opportunity to raise prices slightly to make up for thin or even negative margin conditions that existed in some screen sizes, analysts said.
"What is happening now is a result of panel supplier behavior in Q1 '07, quarterly losses from Q2 '06 to Q1 '07 for the TFT LCD industry, reduced supply growth and tight glass supply," said Ross Young, president of DisplaySearch, a company of The NPD Group. "In Q1 '07, even though demand was lower than expected producing a 12 percent surplus and less than 90 percent factory utilization, panel suppliers ended the quarter with arguably record low IT panel inventories as they focused on minimizing panel inventory growth as well as component inventories."
Young said that at the same time, panel buyers also ended the quarter with minimal inventories as they expected healthy price reductions throughout the first half on seasonal weakness.
"However, with long lead-time components also in tight supply, panel makers could not meet all of their OEMs' demand, creating a shortage and price increases in April," he said. "Due to better inventory management, as well as tight glass supply, panel price increases have continued in TVs up to 37-inch panels through June and are expected to continue to increase or remain stable in July and August."
Sweta Dash, iSuppli LCD and projection research director, said, "In 37-inch I see price stabilization, and 40-inch and above panel prices continue to go down, but the rate of reduction is very small."
Another factor impacting the industry has been revenue disparity for certain panel and glass sizes. For example, there is a large gap in revenues per glass substrate between 32- and 40-inch panels on 7 Gen fabs and between 17- and 32-inch on 6 Gen fabs, said Young.
In May, assuming 100 percent yields, panel makers were expected to "generate 24 percent higher revenues by producing 8-up 40-inch rather than 12-up 32-inch," Young observed. "And at 6G, there was a 16 percent difference in revenues by making 25-up 17-inch instead of 8-up 32-inch. So, panel suppliers had very little incentive to produce 32-inch panels.
"Thus, they insisted on price increases to make 32-inch, which is the single highest volume panel in the LCD TV market. From April to July, average 32-inch panel (not TV) prices have risen 7 percent from $298, to $317, and we expect average prices to rise again in August," said Young.
"A number of brands also told me that they were looking to raise 32-inch LCD TV prices to retailers, given that their costs had gone up $20, but it was going to be a struggle," he said.
iSuppli's Dash agreed that LCD TV price hikes may be wanted, but are not likely to stick.
"Despite panel price increases, pricing on finished goods is not expected to rise," Dash told TWICE. "TV is a consumer market and there is too much competition. They also have to compete with rear-projection TV. So, in 40-inch and above where there is rear-projection TV, there won't be price increases because the manufacturers have to stay more aggressive just to compete with the other technologies."
As for supply by the holiday selling season, Dash said that since many manufacturers are planning large panel plant expansions, "overall we are expecting production to be better at the end of Q3 and Q4."
The Samsung and Sony S-LCD joint venture Fab will add an 8 Gen factory in August, and that is most efficient at producing 52- and 46-inch product. That factory will mostly do TV panels. Sharp is also increasing capacity from the first half to second half in their 8 Gen fab (efficient for 52- and 46-inch panels). They started last year. "So, for the 46-inch and above LCD TV market we will be getting a lot more capacity in the second half," said Dash.
"Over all, some tightness will continue, even in Q3, but by Q4 we expect capacity to come back," she said.
Dash pointed out that in the 40- to 42-inch market, which consists of panels produced primarily in 7 or 7.5 Generation Fabs, production will be ramping up with most 7 or 7.5 Gen fabs scheduled to increase capacity. This includes the Samsung and Sony S-LCD joint venture; Samsung, which has one 7 Gen fab on its own; LG.Philips LCD, which has one 7.5 Gen fab; AUO, which has one 7.5 Gen fab; and Chi Mei (CMO), which has one 7.5 Gen fab.
She said that while many plants cut back production in early 2007, Sharp and Samsung stuck with their production levels.
As for the impact of supply on plans for aggressive holiday promotions, Dash wasn't expecting a big change from last year.
"Black Friday or holiday pricing decisions are made at the end of Q1," she said. "So, if most of those decisions were made earlier when panel pricing was low, then pricing should not be a problem at the holidays. I would expect the high end of the LCD TV market to be more aggressive in the 46-inch and 52-inch screen sizes because additional capacity is coming and LCD really wants to compete with plasma in those areas."